Following similar measures in Greece and Iceland, Portugal’s leadership has approved its largest spending cuts since the 1970s. Economists have comented that it will likely “hurt growth” of the country’s economy, which hasn’t been a growth powerhouse to begin with:

The spending cuts, the biggest since the 1970s, may hurt Portugal’s economic growth, which has averaged less than 1 percent a year in the past decade. That trails the 1.3 percent pace for the whole euro region.

This will almost certainly lead the country into a lengthy recession until the reforms “bear fruit,” according to economists.

Bloomberg is reporting that so-called “QE2″ may be contagious this week, as Central Banks engage in a race to the bottom for their respective currencies:

fallout from the Fed could cause Bank of Japan Governor Masaaki Shirakawa to do more for his economy and Bank of England Governor Mervyn King to leave the door open to more aid. Even as European Central Bank President Jean-Claude Trichet holds the line against inflation, he may eventually change course if the euro surges, while emerging markets are already acting to restrain currencies.

This bodes well for nominal asset prices in the short term: stocks, commodities, metals… But the long term inflation repercussions could wipe out real gains in the process. Pricing in these rounds of “Quantitative Easing” is not for retail investors.

Failing to sell off the troubled unit back to the founders, Ebay intends to sell Skype in an IPO worth as much as $2.5 billion. Ebay would take a loss on the offering, having invested over $3 billion to date.

The Federal Reserve released the minutes of its March 17-18 meeting, revealing that the decisions to enter into swap agreements with foreign central banks and the decision to purchase longer-term Treasuries were both unanimous.

Both decisions have the potential to be highly inflationary, according to some observers, but the Fed seems to be more concerned with the nagging threat of deflation:

Participants saw little chance of a pickup in inflation over the near term, as rising unemployment and falling capacity utilization were holding down wages and prices and inflation expectations appeared subdued. Several expressed concern that inflation was likely to persist below desired levels, with a few pointing to the risk of deflation. Even without a continuation of outright price declines, falling expectations of inflation would raise the real rate of interest and thus increase the burden of debt and further restrain the economy.

While it seems that the decision to purchase longer-term securities on the open market was unanimous, there was some discussion over the amount of purchasing to be done and the type of securities to purchase:

Such purchases would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability. One member preferred to focus additional purchases on longer-term Treasury securities, whereas another member preferred to focus on agency MBS. However, both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain.

Interestingly, with the concern expressed over the expansion of the monetary base, there is no mention on its possible inflationary effects in the longer-term.

Members agreed that the monetary base was likely to grow significantly as a consequence of additional asset purchases; one, in particular, stressed that sustained increases in the monetary base were important to ensure that policy was consistently expansionary. Members expressed a range of views as to the preferred size of the increase in purchases.

They are clearly interested in growth at all costs, even if they are willing to call inflation growth. Further, the Fed is confident that it will be able to seize excess liquidity should inflation return with a vengeance, but one wonders whether the FOMC is nimble enough to staunch inflation in an environment where asset prices falter yet the cost of living increases.

The Congressional Oversight Panel created by the TARP legislation issued a report on Tuesday outlining the current crisis and possible ways ahead. The report concludes that the only ways out of the crisis are: liquidation, selling off the assets of the banks; receivership, taking control of said institutions; or “subsidization,” simply keeping the bankrupt companies afloat by giving them cash.

Of course, we’re only talking about five or ten companies here. The fact is, however, they are huge companies with massive liabilities: Citigroup, JP Morgan Chase, Wells Fargo, Bank of America, and perhaps a few other financial institutions.

While not coming out and saying it — these companies are insolvent — the implications are clear. The report also concludes that taxpayers overpaid for assets by about 50% when the initial crisis took place and the equity swaps were made by Paulson’s Treasury.

The Wall Street Journal reports that the Treasury will announce that life insurance companies will be eligible for Troubled Asset Relief Program (TARP) funds. The article mentions Hartford Financial Services Group Inc., Genworth Financial Inc. and Lincoln National Corp., and Prudential Inc. as applicants, while there is no comment on whether MetLife has applied for funding.

Turns out, those low-risk investments they sell called annuities aren’t so low-risk after all, and they are at risk of being worthless if either the corporate bond market or the stock market falls further. Enter Uncle Sam, when private industry gets it wrong again.

George Soros is calling for a recovery in 2010, we don’t know when it’s going to happen. One thing’s for sure: this market is more like gambling than investing, and even if recovery is on the horizon, stocks appear expensive.

The Federal Reserve released its consumer credit data and it shows that revolving credit lines decreased at an annualized rate of 9.7% in February. That’s the greatest decline in 30 years for the measure, which has been steadily growing.

Consumers saddled by debt are not going to spend the country out of recession, but reduction of revolving lines is a positive for the economy as a whole.

The Dow and S&P 500 closed the week at 8378 and 876, respectively, down 5% and 7% for the week. The Nasdaq fell 9% this week, an indicator that Google’s earnings surprise is not going to heat up the entire sector.

Analysts are saying that Emerging Markets are likely to get the worst of this recessoin, since their credit rating is poorest to begin with.

As always, we are stressing solid, dividend-paying companies with histories of growth through the recession: PG, JNJ, GPC. A small position in SDS or SKF or SRS will offset downside risk and, since these funds work on a double-inverse of their respective indices, they require less upfront investment to reap the benefit.